The recent problems within the secure loan market have been pronounced within the self certification market, more than any other. A self certification loan is a loan whereby the applicant self certifies their income.The self employed and applicants who are employed but also earn income from outside their paid employment are typical people who self declare their income. The lenders available within the self cert market are dwindling, and criteria changes have made the process much more difficult. The problem arises because of risk. All lenders want to ensure, as much as possible, is that they will get paid their money back with interest. They all expect a level of default, whereby someone doesn't pay, but the process of risk management tailors the lenders offering and rates. The better the rate the higher the criteria and less chance of default.
The problem with self certification is that they are relying on the applicant to be realistic about their earnings, unlike a wageslip, which can be seen and verified, a self declaration form cannot be verified.Some lenders try to get round this by asking for proof of earnings, such as accounts, accountants references etc.However, previous year profits do not always relate to current earnings.
The system fails when an individual self declares income that is inflated , simply to obtain the loan they are looking for. When it comes to self declaration, it should be validated whenever possible to ensure the applicants are not over committing themselves and putting themselves in a worse situation financially
Alan Reed, is a Business Owner and writes for several websites including
Self Certification Loan
Secured Loan
Adverse Remortgage
